The Caisse provides performance update

by Jeff Sanford18 Aug 2014

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The Caisse provides performance update

The mighty Quebec pension fund, the Caisse du depot et placement, manager of Quebec government pensions, announced it generated a return on investment of 6.7 per cent for the first six months of this year. This raised total assets to $214.7 billion -- up 7.3 per cent from $200.1 billion in 2013.

At the end of this period, the four-year average annual return was 11.1%, generating net investment results of $71.5 billion. Equities had a return on investment of 8.8 per cent, up $8.1 billion in the period to $101.9 billion as of June 30. This asset class represented nearly half of the portfolio. Fixed income portfolios were at $76.3 billion as of June 30, up $3.4 billion for a return of investment of 4.7 per cent. Inflation-sensitive investments, including real estate and infrastructure, were at $33.6 billion, up $1.1 billion for a return on investment of 3.5 per cent.

The well-known head of the Caisse, Michael Sabia, would not guarantee similar growth rates for the next six months as geopolitical tensions take their toll. "Ukraine, Iraq, Gaza, Syria and Libya, the geopolitical risk is high, which partly explains the decline in markets and interest rates that we have seen over the last few weeks," he said.

Sabia formerly served as CEO of Bell Canada from 2002 through 2008. Moving from government into the private sector, Sabia took over BCE from Jean Monty. In 2007 his board accepted an offer from the Ontario Teachers' Pension Plan to privatize the telecommunications company. The deal would have been one of the largest leveraged takeovers in Canadian history. But by December 2008 the debt market collapsed, and the massive deal fell apart. Sabia was named chief executive of the Caisse de dépôt et placement du Québec on March 13, 2009.

"In the first half of the year, the global economy performed as we generally expected, and the U.S. economy proved robust," said Sabia "Overall, world markets improved, due in part to lower interest rates. Canadian equity regained momentum and made up for some of the sluggishness of recent years by outperforming the other markets...Our 6.7% return reflects market performance during the past six months and contributes to our long-term performance. And this is what counts. Our annualized return of 11.1% over four years is slightly above that of its benchmark portfolio and exceeds our clients' needs. [But]...the investment environment will become increasingly demanding. The challenges ahead include modest and fragile global economic growth, high geopolitical risks, the level of interest rates and, more generally, the normalization of monetary policies."

The Caisse has sometimes been called the head of Quebec Inc. Living up to that name, the fund continued to invest in the provinces economy. As part of a strategy to foster the growth of Québec small and medium-sized business, the Caisse invested I $25 million to Anges Québec, an organization dedicated to the growth of innovative companies. The Caisse also launched Innover Agir., a forum for entrepreneurs in Québec. The Caisse invested in Laurentian Bank, TC Transcontinental and Industrial Alliance, three key Quebec companies. The fund's real estate subsidiary, Ivanhoé Cambridge, committed close to $50 million for the redevelopment of the Place Ste-Foy shopping centre in Québec City.

But the fund was also working globally: There was a 25% stake in London Array, the world's largest offshore wind farm, located off the coast of the United Kingdom, as well as a 24.7% share in Invenergy, a North American leader in the wind power industry. Internationally Ivanhoé Cambridge invested more than $250 million in the U.S. through the acquisition of a stake in 330 Hudson in Manhattan. The fund was also a partner in the acquisition of residential buildings in London and committed more than $120 million in Brazil for the development of a new shopping centre and the expansion of existing ones.

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